Case Study of GSK Company (Term Paper Sample)

ANALYSIS OF THE PHARMACEUTICAL INDUSTRY: GSK and AstraZeneca
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Analysis of the pharmaceutical industry
Porter’s five forces model
The model is a depiction of the five fundamental forces that describe the market or industry. The five forces represent the market conditions and provide a guide for strategic decision making by providing the organization’s management with facts that can help determine the suitability of the market (Coers et al 2001). The model was invented by Michael E. Porter of the Harvard Business School in 1979 as a way of remedying the shortcomings of SWOT analysis. According to porter, the SWOT analysis approach was quite vague and did not provide a strict framework that could guide the strategic planners. The five forces can be divided into two categories. The first category is the horizontal competitive category and the second class is the vertical competitive category (Russell and Russell 2009). In the first category are three forces, which are: threat of substitute products, threat of rivals that are well established in the industry and the threat of new entrants. The vertical competitive forces are: the bargaining power of suppliers and the bargaining power of the customers. This model can be applied to the pharmaceutical industry, which arguably the most profitable industry in the world in current times. Below is a diagram of the porter’s five force model.
Threat of substitute products
From market economics, substitutes cause elasticity in the price in relation to demand. This means that where a product has competitors, a small change in price causes a more than proportionate change in the demand for the product (May 2010). This makes it difficult for an organization to introduce any changes in price or products. A situation arises where the sellers are buyers are many and homogeneous. This calls for high degree of differentiation. Operating in such a market is not economically advisable following the volatility. It could be preferable to operate in a market with little competition. As a matter of fact, the global pharmaceutical industry is already established to the extent that no other alternative can come up with products that can match up to the standards of the medicines and drugs produced by the existing firms. With such firms as GSK and AstraZeneca, the manufacturers of what can be defined as substitutes do not produce products that can substitute.
It is critical to point out that the only things that can be described as valid and worthy competitors to the products of the giants in the pharmaceutical industry are the drugs that are generic. Generic drugs are not counterfeit products, as common misconception has it. On the contrary, they are those drugs produced by companies that do not have patents to produce the drugs. Apparently, the companies that have patents enjoy the monopoly of producing the drugs for a maximum 20 years. After the 20 years, the patents expire and other companies are allowed to continue manufacturing the drugs. Essentially, what this means is the actuality that during the first 20 years of discovering a drug, the manufacturing company, say GSK does not face any competition from the generic products. In straightforward terms, substitutes do not exist during the first 20 years of producing. Other substitutes that exist are the alternative and usually traditional drugs and remedies. These are common in oriental cultures, especially India and Chinese cultures. Such drugs and remedies include such options as acupuncture, a concept that is fast gaining acceptance in the western world as well. Even so, such alternatives do not pose stiff competition as they have no scientific backing (Pahl and Anne 2009). The threat of substitutes is rated medium to high.
Threat from rivals that have established in the industry
Apparently, challenging a firm that already has a name in the industry is considerably difficult. Where the rivals are established, an organization should always endeavor to emerge with the most effective methods of establishing good will (Ahlstrom and Garry 2010). The primary difference between an organization that has been in operation for a while and one that is not well established is the fact that the one that has been around long enough has had the chance of creating good will and customer loyalty. The pharmaceutical industry is considerably competitive especially considering that the number of well established organizations is very high (Lindgren and Hans 2003). The level of competition is defined by such big organizations as GSK and AstraZeneca, companies that have quite significant synergies especially considering that they have come to be as a result of a series of mergers. Taking GSK as an example, the organization has a long history of merging. Such merging strengthens the organization in the sense that the resource base becomes wide and the competitive advantage becomes high. It may be necessary to point out that the level of competition in the pharmaceutical industry is almost fully attributable to merging and partnering. Speaking of partnering, companies have continuously engaged in supplier partnerships, which have ensured stability and business resilience. Research experts explain that the competitive nature of the pharmaceutical industry is attributable to the potential for high returns. Men are left at the mercy of blue movies, which, again, are illegal in Kenya (Jeez, ladies, are you seeing how difficult it is being a Kenyan man?). And even if one were to access such, those available in third-world countries such as Kenya are the low-budget ones where the dominant themes include speed, stamina, and the erroneous perception that size really matters. For instance, most Kenyan men's idea of that thing called foreplay is hard spanking, vulgarity, yelling and barking orders!”
Threat of new entrants
The one thing undesirable about new entrants is the actuality that ease of entry is associated with perfect competition (Roy 2009). Perfect competition is a situation where the market is characterized by many buyers, many sellers, and identical products. In such a market, prices go down due to competitions. Noteworthy is the fact that new entrants can be prevented by such things as copy rights and patents (Bòhm 2009). In the pharmaceutical industry, the threat of new entrants is extremely low. As a matter of fact, the threat of the entry of new entrants is extremely low, especially considering that the market is densely populated with well established firms, which have committed a very heavy capital outlay to the industry. It might as well be worth mentioning that entering the industry is considerably risky as there may be no return on investment (ROI), especially if a company fails to create a new drug. The heavy capital requirement of joining the pharmaceutical industry is a put off for many investors.
Bargaining power of suppliers
Suppliers have a high bargaining power where the material or whichever resources it is they are supplying is in short supply. During such a time, the people supplying the products are in near full control of the price fluctuations. Perhaps the only way to tame supplier bargaining power is through establishing such concepts as supplier partnerships (Hitt et al 2011). The extent to which the industry is established has led to a number of suppliers. The high population of suppliers has contributed to low supplier bargaining power. Low supplier bargaining power means that the suppliers have little impact on the decision making process of the organizations. However the suppliers in the pharmaceutical industry remain relevant by the fact that such suppliers supply technology, which is continuously advancing. Advancing technology refers to the progressive manner in which technological advancements become realized. Suppliers of specialist knowledge such as the chemists remain substantially relevant as such specialist knowledge is the core of production.
Bargaining power of customers
Typically, high income is associated with high purchasing power. When the customers have high bargaining power, they are in a position of determining the prices. Substitutes and buyer information availability enhance customers’ bargaining power (Jeffs 2008).Considering that the patents of the organizations remain solely in the hands of the discovering organization, it is valid to conclude that the manufacturer, or rather the discoverer of a drug has the right to set the price of the drug, and to determine how such drug will be distributed. After the expiry of the patents, the generic manufacturers flood the industry making the customer become a powerful decision maker and determinant of price and distribution, since the suppliers of the drug increase in number posing competition – a factor that leads to low prices.
Strategic objectives of the organizations
Apparently, GSK and AstraZeneca are the biggest organizations in the pharmaceutical industry. The organizations have been described variously as the fiercest of all competitors in the industry of pharmaceuticals. The 2012 CEO reports on strategy and social responsibility indicate that the organizations are substantially different due to the fact that their aims are different ad that their strategies endeavor to achieve different things. The strategies of the companies were substantially different, yet similar to a big extent. This is to say that the strategies of the companies can be compared and contrasted to a big extent. Strategic objectives are those aims that an organization seeks to achieve, in order to realize the longer term endeavors.
The strategic objectives of GSK
From the 2012 CEO report on strategy and social responsibility, it is clear that the key strategic objective is to achieve a high degree of inn...